What is an Economy?
Economy: Production or exchange of goods and services by a group› Goods: things to be traded, bought, or sold› Services: work done in exchange for
payment› Labor: work force, the workers
Economic Geography What is Economic
Geography?› Concerned with how
people use the earth’s resources
› How people earn a living
› How products are distributed
Traditional Economy Custom and tradition determine what should be
produced Goods and services are exchanged without
money; subsistence agriculture Change and growth proceed very slowly Often there is no private property; things are
owned by the family or village Goods and services are produced to meet the
needs of the members of the family/tribe Very little outside trade Also called “Barter”
Command Economy All important economic decisions are
made by government leaders, including production of goods and services
Cooperation is supposed to replace competition, allowing everyone’s needs to be met; goal is to achieve a classless, equal society
Citizens can be assigned or strongly encouraged into various employment
Private property ownership is abolished and replaced by national ownership of all land, factories, farms, and major resources
Also called “planned economy” or “communism”
Example: Cuba, China, North Korea, Vietnam
Market Economy Goods and services are determined through supply
and demand; individual decisions on what to buy or sell
People are free to take part in any business, buy any product, or sell a legal product.
Private ownership of businesses and land; private investment
The government only provides and enforces a set of common rules, maintains monetary system, and will sometimes break up or regulate companies that could defy market forces
Also called “free market economy” or “capitalism” Example: USA
Mixed Economy Combination of
command and market economies
Mixed amounts of government control and private ownership
Example: Canada, most European countries
What is Supply and Demand? Supply: how much of a good is available on the
market Demand: how much consumers are willing to pay for
a good The interaction of supply and demand determines
prices in a free market economy. When demand is high, the price goes up. It the supply is high but demand is low, the price goes down.
What’s the difference? COMMUNISM Government makes all
important economic decisions
Absolutely no private property ownership – government owns all lands and businesses
Cooperation replaces competition
Goal: achieve a classless, equal society
SOCIALISM Many decisions about
production, distribution, and use of resources are made by the government
Only major industries are owned by the government – other property is held privately› Major industries: mines,
factories, railroads, education, airlines, transportation, health care, radio stations
Goal: fair distribution of income among all members of society. People’s basic needs are met for free or at a very low cost
Comparisons
Subsistence Agriculture growing only enough to
feed the farmer and his family. There is rarely a surplus so very little is sold or traded. Economic growth is slow.
Commercial Agriculture farmers grow food not
just for themselves, but in order to sell it to others for cash. Crop production is intended for distribution to wholesalers and retailers, such as supermarkets and grocery stores. Large scale makes production cheaper. Mechanized equipment is used over large tracts of land.
Comparisons
Cottage Industries people use their spare
time to weave cloth, make furniture and clothes. Producing goods by hand. Help farmers and their families meet their needs and may give them extra income during the winter months. The entire family works together.
Commercial Industries goods are
manufactured in factories for sale throughout the country or overseas.
FIVE Employment Sectors Different levels of employment (labor) are based
on a variety of factors1. Education level required to perform task2. Location (geographic – available resources)3. Location (to appropriate market)
Economic Systems Types of Economic Systems – Comparison Chart
TRADITIONAL
SYSTEM
COMMAND
SYSTEM
MARKET
SYSTEM
MIXED
SYSTEM
WHAT TO
PRODUCE?
By custom – whatever was produced in the past
The government decides what should be produced
the government owns most of the means of production
Consumer choices dictate the success of goods/services
Consumer choices dictate the success of goods/services with some government regulation
HOW TO
PRODUCE?
By custom – however items were produced in the past
The government does the planning for production; factory locations; the occupations of workers and their salaries
Business leaders choose the means of production
Their goal is the most efficient and profitable methods
Business leaders choose the means of production with the government regulating a fair economy
FOR WHOM
TO
PRODUCE?
By custom – whoever usually received products will again receive them
The government controls the distribution system for goods/services; housing, transportation, consumer items and sets prices
The consumers’ income determines who receives which goods/services
The consumers’ income determines who receives which goods/services
Primary Activities Gathering raw
materials like natural resources taken from the Earth› Examples: mining,
fishing, farming, agriculture, forestry
Secondary Activities Manufacturing and Industry
› Converts raw materials into new products
› Adding value to raw materials by changing their form
› Example: food processing, manufacturing, refining
› Found: near markets to serve customers, where special manufacturing needs can be met, where the government creates the industry
Tertiary Activities
Service Industries like business or professional services› Example: retail salespeople, doctors, hair
stylists, manicurists, health care, banking
Quaternary Activities Provide information
processing, research, or management by highly trained professionals› Example: store managers,
scientists, computer programmer, legal services, professorships
Quinary Activities
Highest level of decision makers and management for businesses and organizations› Examples: CEOs for
international corporations
Toothpick1. Lumberjack chops down the tree
› Primary Activity
2. Wood from tree is manufactured into a toothpick
› Secondary Activity
3. Toothpick is advertised (marketed) and sold at H-E-B by a sales employee.
› Tertiary Activity
4. Executive for toothpick Company wants to create a toothpick that is cheaper to produce and lasts longer
› Quaternary Activity
How do you rate an economy?
GNP = “Gross National Product” Total value of all goods and services
produced by a country over one year May reflect the value of goods/services
produced in a country by a company owned/based in another country› value of goods produced in another country
(shoes made in Thailand) by an American-based company will count towards the US GNP
GDP = “Gross Domestic Product” Total value of all goods and services
produced within a country over one year Outsourcing labor counts for US GNP but not
GDP
Infrastructure
Basic support systems to start an economy and/or keep it going› Roads› Electricity› Water› Airports› Ports› Trains› Technology
Economic Development Economic development refers to how
advanced an economy is Advanced economies are more developed
countries Lower standards of living and less
advanced technologies are less developed countries
Countries moving from less to more developed economies are “newly developed” or “emerging economies”
What are indicators of development?
The United Nations (UN) developed the Human Development Index (HDI) to rank countries based on their level of economic development.
They look at demographic, economic, social, and political indicators.
Demographic Indicators Birth Rate Death Rate Infant Mortality Rate Fertility Rate Life Expectancy
› The average number of years an individual in a country is expected to live; related to the country’s level of poverty
How do these indicators apply to more and less developed countries?
Economic Indicators Economic indicators tell how well an
economy is performing More developed countries will have:
› Higher GDP / GNP› Higher per capita income› Higher standard of living › More trained professionals such as doctors› Workers’ productivity depends on
machinery, computers, and other high-tech tools
› Average number of technological appliances: automobiles, telephones, televisions, computers
Social Indicators Social indicators concentrate on the social
services provided by countries for their citizens
Some indicators that are considered: • Literacy rates (percentage of people who
can read and write)• Percentage of people attending colleges
and universities• Number of working professionals• Quantity and quality of housing• Water supplies• Sanitation
Political Indicators• Political indicators include:• Freedoms people enjoy• The degree of democracy and voting rights• The level of human rights,• The degree of government oppression and,• Tolerance for different points of view.
• There is no direct relationship between economic development and a nation’s system of government.• Some more-developed economies have
been ruled by dictators while,• Some democracies are less developed
countries.
Developed vs. Developing Countries
DEVELOPED Also Called Industrialized Why?
› Form of government (democracy)
› Free market economy› Lack of corruption› More dependent on
manufacturing than agriculture
› Prevalent technology Examples
› United States› Japan› Germany› France
DEVELOPING Also Called Third World
Countries Why?
› Undeveloped industry› Lack modern technology› Low levels
Education Healthcare Life expectancy
Examples› Mexico› Brazil› South Africa› Thailand
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